Context

• The COVID-19 measures of social distancing and imposed lockdown have brought out the woes of migrant workers and the large population in rural areas dependent on agriculture.

Lockdown impact on rural economy

• The economy has come to a complete halt in most of the informal and formal enterprises in urban areas. Apart from its evident effect on urban economy, the lockdown is also likely to affect a large population in rural areas.
• Even prior to the lockdown, the rural economy was witnessing declining incomes, both for casual workers and self-employed workers. Even the rural wages were declining in real terms. The lockdown is only going to further hurt the rural economy.
• The majority of the rural population is dependent on agriculture.

Lockdown impact on Agriculture

Impact on supply chains:

• The restriction on movement and lockdown has led to the breakdown of supply chains of agricultural produce with no facilities for transportation of produce.
• This will affect the farmers involved in production of fruits and vegetables, which are perishable goods and cannot be stored.
• Over the last decade there has been a considerable increase in horticultural production with horticultural production exceeding food grain production. Farmers are likely to face uncertain or no markets for their produce. There have been media reports of some farmers destroying their produce due to lack of market.
• While the government has exempted operation of agricultural markets and mandis from the lockdown, government procurement is likely to be subdued.

Lack of labour

• There will also be short-term impacts on food grains and other Rabi crops that were ready to be harvested at the beginning of April.
• It will be difficult for farmers to harvest the agricultural produce in the States of Punjab, Haryana and Uttar Pradesh in the absence of migrant labourers.
• Though harvesting may be postponed, it is difficult to do so beyond a week or a fortnight.
• Labourers are also required for packing, processing, transporting and selling the produce. 2020 is expected to register a record in the production of cereals, pulses, cotton and oilseeds. Most of these are labour-intensive crops and the absence of working labourers during the harvest and post-harvest season is likely to affect agricultural activities.

Reduced demand

• The closure of restaurants, hotels and supermarkets has reduced the demand for agricultural goods.
• The slowdown in the economy domestically and the expected recession worldwide will contribute to lower demand for agricultural commodities.

Decline in prices

• The food price index of the Food and Agricultural Organization, which registered a rising trend in food prices until January 2020, has a 1% decline in prices month-on-month in February 2020. This is likely to worsen further, particularly for cash crops.
  • Commercial crop prices follow a similar pattern as other primary commodities, particularly petroleum prices. With the sharp decline in petroleum prices, most of the commercial crops have seen a downward pressure on prices, which is likely to worsen in the coming months.
• For food grains and other crops too, there is likely to be downward pressure on prices due to declining demand.
• The real worry for farmers is going to be the decline in prices for the majority of agricultural produce.

Impact on agricultural income:

• Some of the short-term impact may affect price realization by farmers. The declining prices for the produce and the likely higher labour charges will adversely affect the prospect of higher agricultural income.
• It is the decline in prices which is likely to hurt the income of farmers in the long run more than the short-run supply disruptions and labour shortages.

Enhanced state procurement under MSP scheme:

• As part of the economic package announced by the central government, for the next three months, 5 kg of free grains will be distributed in addition to what people are entitled to under the National Food Security Act.
• This would free up the FCI godowns. This can enable the government to increase its procurement under the MSP scheme for the forthcoming Rabi crops.

Ensuring remunerative income to farmers:

• The state should intervene and assure remunerative incomes to farmers.
• The government can help reduce the input costs through existing schemes of subsidies such as the fertilizer subsidy and through price reduction in petrol/diesel meant for agricultural purposes.

Direct Income support:

• For the immediate short-term, farmers need to be compensated for the loss of income. While income transfers may not be the best way of supporting the agricultural sector, given the criticality of the moment they are the best available instruments.
• The government can use the existing framework of the PM-KISAN scheme.
• Efforts should be made to not only enhance the coverage monetarily but also include tenant farmers and wage labourers as well.

Way forward

• Given that agriculture will be affected due to short-term disruptions and the long-term economic impact of the pandemic, the government must help the farmers who are battling declining demand and lower prices through state support.

Conclusion

• The steps suggested are not only important for the survival of the agricultural sector but also for the overall economy which is expected to see a sharp slowdown and decline in demand.
• The agricultural sector is important in the Indian context. Given the large section of population it supports, a well functioning agricultural sector will help raise rural incomes and create demand, which can revive economic growth in India.